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Scroll down formonthly updates of the 11 Economics charts

 Debt Wall - Massive Deficits will induce 2024 Austerity Crisis & Severe Recession

June 2nd delayed FreeVenue public release of March 2nd MemberVenue guidance ~ Along with traditional American macro forecasts, the TRENDLines Debt Wall chart had typically since 2009 depicted US Gov't Structural Deficits rising to $10 trillion Deficit (19% of GDP) & its federal Debt rising to $125 trillion (235% of GDP) by 2040 if Congress pursued its path to preserve long-term entitlements.  There was always a caveat this journey was unsustainable and thus someday there would either be a voluntary (or involuntary) intervention.  Credit must go the Tea Party movement for bringing discussion of this fiscal irresponsibility to the mainstream.

This looming fiscal crisis has been a focus for Trendlines Research for over a decade.  It is inconceivable the Treasury Dept can continue massive Deficit related borrowing without impunity.  So it is with great pleasure this week I am unveiling enhanced versions of the TRENDLines Debt Wall & TRI USA models which consider empirical data to project when the US will cross the tipping point for its excessive sovereign issuances and project the macro consequences.

The analysis suggests this is just the start for what is certainly to become monthly incremental downgrades thru the A, B & C series of ratings.  It is forecast the 10-yr bond's present 2% yield will double by 2020 and hit six percent (and a "CC" rating) in 2023 upon attaining a critical mass of ugly metrics.  The $26 trillion gross federal debt will feature a 119% Debt/GDP ratio and the record $1.6 trillion Deficit sports a 7.1% Deficit/GDP.

click chart for Debt Wall guidance...

  TRI-Canada ~ 2024 USA Treasuries Crisis will have Minor Impact in Canada

June 1st delayed FreeVenue public release of March 1st MemberVenue guidance ~ Traditional American macro forecasts have typically shown its Structural Deficits lead to a 2040 $10 trillion Deficit (19% of GDP) & a $125 trillion Federal Debt (235% of GDP).  This scenario has always been understood to be unsustainable and is the basis for long-term entitlement reform discussions among their politicos over the past two years.

This looming fiscal crisis has been a focus for Trendlines Research for over a decade as it is inconceivable their Treasury Dept can continue massive borrowings without impunity.  So it is with great pleasure this week I am unveiling recalibrated versions of the TRENDLines Debt Wall & TRI USA models which reflect empirical tipping points for excessive sovereign borrowing.

For America, the first run reveals Treasury bonds will face annual incremental downgrades leading to B & C ratings and 7% yields;  an eventual reluctance to borrow;  harsh austerity measures by Congress to re-balance its Budget;  a return to high unemployment and a multi-year Severe Recession commencing in 2024.  Canada does not come out of a downturn of its major trading partner unscathed.  TRI projects a 2024 Technical Recession assuming completion of present free trade agreement negotiations and proposed coastal petroleum pipelines.

The TRENDLines Recession Indicator monitors two measures of the Canadian economy:  Real GDP (TRI:  the conventional gauge of economic activity but filtered for reporting period noise) & Structural GDP (TRIX: a measure of economic growth filtered of fiscal policy Deficit & Surplus influence).  The model suggests Canada has long emerged from a Structural Technical Recession with sufficient critical mass to sustain positive economic growth w/o the assistance of fiscal policy stimulus but faces the long-term headwind of an ongoing realty bubble correction requiring diminishing accommodative monetary policy `til 2018.

 TRI   StatCan released data today inferring December's (Q4) Real GDP grew at a 0.6% rate, compared to the TRI inference of a 1.3% pace when filtered for reporting period noise.  TRI gauges February Real GDP was 2.1%, up from 1.6% in January.  TRI's measure of animal-spirits-plus projects a 2.1% Q1 & 0.8% Q2.

 TRIX   The preceding discussion is typical of conventional Real GDP narrative where one identifies the symptoms of an economy ... not its underlying problems if any.  The genuine health of the Canadian economy is best observed when viewed thru a prism which filters Federal Gov't Deficit & Surplus influence.  Accomplished via fiscal multipliers, the resulting metric of Structural GDP is depicted in the chart as TRIX (red line).

click chart for outlook table & guidance...

  USA TRI:  Massive Structural Deficits to Trigger 2024 Severe Recession

May 28th delayed FreeVenue public release of Feb 28th MemberVenue guidance ~ The Trendlines Debt Wall model has determined by 2023 the federal govt's Structural Deficit will rise to $1.7 trillion (7% of GDP).  Servicing the $26 trillion Federal Debt (118% of GDP) will cost $1.1 trillion.  Finding these metrics to be unsustainable and with interest payments already crowding out federal program spending, TRI concludes the international investment community will find these metrics to be unsustainable and will demand 7% yields on long-term Treasury bonds.  Borrowing realities will force Congress to impose harsh austerity measures amounting to 50% of each of the next four Budget Deficits.  This action will trigger a Severe Recession in 2024.  Today's update reveals the American economy has made steady progress since high petroleum prices induced a business cycle pause in April 2011.

The TRENDLines Recession Indicator monitors two measures of the USA economy:  Structural GDP (TRIX) & Real GDP (TRI).  The model suggests the US has been mired in a Structural Greater Depression since early 2007 but this underlying reality has been masked by five massive trillion dollar federal Deficits.

 TRI   This month's guidance again conflicts significantly with today's announcement by BEA its second estimate for December (Q4) Real GDP is a mere 0.1%, a number likely to face upward revision when compared to the 1.6% pace gauged by TRI.  February GDP is assessed @ 1.9%, while TRI's measure of animal-spirits-plus projects a 1.6% Q1 & 1.7% Q2.

 TRIX   The above discussion is typical of conventional Real GDP narrative.  But the extent of the malaise of the American economy is best comprehended when economic activity is viewed thru a prism which unveils the influence of the Federal Gov't Deficits (and occasional Surpluses).  This is accomplished via the filter of fiscal multipliers.  Trendlines Research has been tracking the resulting metric (Structural GDP) since Sept/2012 depicted as TRIX (red line) in the chart.

 Headwinds   Factors contributing to short/medium/long term weakness of the RGDP & SGDP outlooks continue to be:  (a) political dysfunction;  (b) stubbornly high unemployment;  (c) rising international inflation & interest rates;  & (d) structural deficits and sovereign debt rating downgrades.  The threat from residual high petroleum costs was finally eliminated last month.

click a chart for outlook table, guidance & research notes...

May 26th delayed FreeVenue public release of Feb 26th MemberVenue guidance ~ Comparing this past Winter to last year, the national median/avg price is down in Australia & the UK and up in Canada & the USA.  The first three are generally in multi-year realty bubble corrections as measured by variance from the long-term trend of their Price/Family-Income ratio.  Each of these nations faces a prolonged stifling of economic activity due to the profound assault on consumer disposable income by the incredible weight of home mortgage and rent payments.  The fundamentals remain in place for Technical Recessions in all three jurisdictions.

Home values are most at risk in the UK where the avg home is overpriced by 108%.  As such, its economy has suffered GDP contractions in five of the last seven quarters.  The Australian median home is currently 74% overpriced.  Due to its proximity to Asia, growth has been positive but GDP has never exceeded 1.4% over the last two years.  Canada's housing bubble was the last to burst (Aug/2011) making it to 32%, compared to 55% in 1989 and followed by a lost decade.  Today the avg home here is still 20% overpriced, sells for 2.0 x's its American counterpart and appears to be playing out a similar scenario.  The Canadian economy has suffered no less than eight monthly GDP contractions since Sept/2010 and the TRENDLines Recession Indicator currently projects annual economic growth will not exceed 2.0% on the way to 2020.  Canada's Great Recession was only 10 months, but the feat of a relatively short duration was not accomplished by clever fiscal management but rather by Gov't inaction to prolong the housing bubble whilst other jurisdictions were correcting.

Conversely, the USA median price resumed its secular uptrend (March 2012) and is up over seventeen thousand dollars from the same season last year.  In May 2012, Gary Shilling made made the case USA homes will drop another 20%, whilst in March 2012, Robert Shiller proclaimed it could be five decades 'til American homes re-attain their old highs.  I cannot share their pessimism.  My analysis reveals both Existing Home & New Home prices have completed a classic return-to-the-mean correction.  New Homes will break the 2007 annual record this year and Existing Homes should set a new high in 2023.

This price escalation will occur despite an inevitable rise in interest rates.  The USA TRI model forecasts FOMC will finally commence normalization of its key rates in mid 2015.  This should result in a 2% rise in 5-yr mortgage rates  by late 2016.  International interest rates will likely rise ahead of the USA and this external influence may accelerate the housing price correction in Australia, Canada & UK.  After Canada's first realty bubble, its correction was a mere -6%.  It is probable these three jurisdictions can expect a similar scenario rather than the rapid 25% plunge witnessed in the USA.

click a chart for 4-nation Bubble guidance & research notes ...

 USA "Real" Unemployment Rate stable @ 14.4% in

January

May 1st delayed FreeVenue public release of Feb 1st MemberVenue guidance ~ Today's headline USA Unemployment Rate for January may have ticked up to 7.9% (U-3), but the dire state of the jobless is better reflected by the REAL Unemployment Rate ... 14.4%.  The latter U-6 BLS rate has been stable since November and is significantly below the Great Recession induced high of 17.2% set Oct/2009.  That said, today's rate is not even 1/3 the way back to the pre-Recession low of 7.9% in Dec/2006.  To the 12.3 million U-3 unemployed, the U-6 calculation adds the marginally attached:  8.0 million involuntary part-timers (economically necessitated), 0.8 million discouraged souls (no longer looking for work as no apparent jobs) and 1.6 million saddled with school or family responsibilities.  If there is good news, it is the economy is finally again producing the 104,000 new jobs/month required to hold the Unemployment Rate from rising considering natural growth of the labour force via graduating students and immigration less retirements.

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  TRI Suggests China GDP is on the Rise... d

April 18th delayed FreeVenue public release of Jan 18th MemberVenue guidance ~ Today's Trendlines Recession Indicator quarterly update reveals Chinese economic activity has been on the rise for the last six months.  Both the Central Peoples Govt's official GDP figures and TRI's gauge of baseline Real GDP re-confirm that media & pundit speculation over the past two years that China's economy had been facing a business cycle hard-landing was completely unsubstantiated.  Using conventional Q/Q reporting methodology on the CPG data, the Real GDP growth rate slipped to no worse than 6.0% (March 2012) while TRI's monthly monitor assessed a low of 7.8% in July 2012.  This hiatus is attributed to engagement by authorities in anti-inflation activity.

China's official data released today infers Q4 Real GDP was 8.2% (Q/Q), down from an 8.8% pace in Q3 but vastly improved from the 6.0% in Q1.  Conversely, TRI's monthly gauge of economic activity found December (Q4) to be a robust 9.4% (Q/Q), up from an 8.2% pace Sept (Q3).  TRI's measure of animal-spirits-plus projects GDP is en route to a robust 9.9% in February.  From that juncture, China-specific headwinds should gradually dampen GDP growth rates to an ultimate annual low of 8.0% in 2020, down from a projected 9.5% for 2013.  At this time no soft-landing of the current business cycle appears in the visible horizon.

click chart for guidance...

 ~

blast from the past with chart update

July 21 2010 ~ Due to exorbitant gasoline and diesel prices at the pump, USA Car & Light Truck sales collapsed in 1980,  1990 & 2007.  On its present trajectory, the same fuel cost/GDP ratio that initiated these episodes of dramatic demand destruction will be revisited upon $3.42/gallon gas ($92/barrel crude) ... probably in 2011Q1. 

Ignoring the Cash-for-Clunkers anomaly, annualized sales have climbed back to as high as 11.8 million from 9.1 in Feb/2009.  See our Gas Pump & Barrel Meter charts for lots more discussion on the real factor thrusting the USA economy into double-dip.

 ~

   Real farmers don't live on subsidies... they live in Brazil !

                                                                                                                                                              Freddy Hutter, TrendLines Research,  Aug 4  2004

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